Photograph: Brittany Hosea-Small/Reuters Why are deposits important? It has indicated that the country’s banking sector is robust despite the problems emerging in the US and Europe.Ĭustomers stand outside the Silicon Valley Bank headquarters in Santa Clara The changes are designed to help avoid a credit crunch a situation whereby the global banking system tightens up and it becomes much harder for consumers and businesses to get a loan.Īustralia’s central bank is not included in the initiative. Until at least the end of April, the Federal Reserve will offer daily currency swaps – rather than weekly – to ensure central banks in Canada, Britain, Japan, Switzerland and the euro zone have adequate US dollars to operate. The mechanism to do this is called a swap line, which are agreements between two central banks to exchange currencies. This is designed to ultimately flow through to borrowers, who need access to credit for mortgages, businesses and investments. The initiative, led by the US Federal Reserve, will enable other central banks to more easily obtain US dollars that can be distributed to commercial banks in their countries. Several central banks have announced a strategy to keep money flowing through the global economy to help ward off the sort of credit crunch that gripped markets during the financial crisis. Read more How are central banks trying to avert a meltdown? In the case of Credit Suisse, it received an emergency loan from Switzerland’s central bank last week, which initially soothed the market. It took just 48 hours between the time SVB disclosed that it had sold its bond portfolio at a loss and its collapse. The swift share price movements, and ability of customers to quickly pull their deposits, has been attributed in part to social media and its ability to disseminate information quickly. It is clear, however, that the speed of the demise of SVB, and then Credit Suisse, has spooked bank investors and customers. Investors have been selling down regional US banks, in particular, over concerns they might have balance sheets that resemble SVB’s finances.īut other parts of the market, including US tech stocks, have held up well during a volatile few weeks, indicating some investors expect the threat of a banking crisis to subside. The California-based Silicon Valley Bank is the biggest US bank collapse since 2008, and Credit Suisse has joined financial crisis peers such as Bear Stearns that were sold at fire-sale prices.ĪMP chief economist Shane Oliver says that while the bank failures do not look like a rerun of the financial crisis, they do represent contagion risks.
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